In general terms, capital means finance. To keep the economy rolling, finance lubricates the growth pattern of an economy. For example, you may have a huge amount of liquid cash at your disposal.Keeping them in your locker will not help the money multiply.

Alternatively, you may move such funds into the bank or financial institution, invest in various schemes, so in turn, this money will flow into the economy via financial markets. Saving not only generates funds for you but also for the economy as a whole.

Thus, capital markets play a vital role in the mobilization of these savings/liquid cash for investment purposes.

By allowing a platform for infusing capital in the economy, trading of securities, raising long-term finance etc financial market plays an imperative role in keeping the economy rolling.

Financial markets are majorly divided into following components:

What is a Capital Market?

Capital markets are a type of financial markets. It is a market for buying and selling financial securities. It acts a conduit in the flow of funds from the savers to the fund seekers.

In fact, capital markets are the most popularly followed financial markets.

The spontaneous platform provided by capital market helps the Government and businesses to raise funds for a variety of long-term purposes such as the expansion of business, mergers, and acquisitions, etc.

In case of capital markets, the money is pooled in for a period of more than a year.

As compared to what capital markets were in the past, the present capital market system is well equipped with an electronically based trading system which provides an expansive platform, bringing together traders from different zones and countries.

The capital market and in particular the stock exchange is referred to as the barometer of the economy. – ICSI study material

What is a Securities Market?

Securities market provides the platform for those financial instruments that are transferable by sale.

It, further, comprises of two important components: primary market and secondary market.

Primary Market

Primary markets allow mobilizations of funds via the issue of new securities.

Such funds are primarily utilized for long-term purposes such as starting a new project or modification of an old project.

For example, Company A Limited requires funds. It issues shares in the primary market. When the company issues shares for the first time, it is called Initial Public Offering (IPO). A further issue of shares is known as Follow-on Public Offer (FPO). The primary market comprises of both IPO and FPO.

Money Market:

The borrowers and lender can avail short-term funds up to a maximum period of one year. Money markets are highly liquid in nature, carrying low default risk.

Bottomline:

Thus capital markets initiate the entire process of mobilization of savings and channelize such savings to those sources through the investors. The growth of the economy is marked by the process of flow of funds through the aforementioned markets.

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@Sukanya – Hi, Thank you for reading through and appreciating.
We will be further coming up with blogs on related topics. Let us know in case of any similar topics you wish us to add further.
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Hi, Thanks for sharing the basic details around Indian capital market and I was searching for details on it. Actually I am currently pursing CFA level 1 exam and am going through all the educational site to give basic insight around finance anf found it very useful

Thank you for the information. We can also add Currency markets being the largest market in the world. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. Currency markets is a global decentralized or over-the-counter (OTC) market for the trading of currencies. Foreign Institutional Investors (FIIs) to participate in Indian Currency Exchange platform to trade and/or hedge with lower costs and higher leverage in an organized regulated environment as compared to the OTC market.